Dollar falls as market volatility, oil price weigh

The dollar fell on Friday against key world currencies amid a selloff sparked by market volatility concerns and slumping commodity prices that overshadowed solid U.S. retail sales data.

The greenback had edged higher in morning trading against major rivals, and got a modest bump from U.S. retail sales data that showed consumer spending rising strongly. But it turned negative shortly after as the data looked unsupportive of further monetary policy tightening by the U.S. Federal Reserve beyond December's heavily anticipated rate increase.

"At this point, the market is shifting its focus off next week's Fed rate hike, which has largely been baked in, and onto the path of normalization in 2016," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"So these external macro factors could limit the scope of Fed hikes next year and that is weighing on the dollar."

Global market volatility, weakness in commodities, and a continued devaluation of the Chinese yuan have added to fears of an international slowdown, said Esiner.

That pushed the safe-haven Japanese yen and Swiss franc up broadly versus the dollar. The dollar fell 0.96 percent versus the yen to 120.78 yen. Against the franc, the dollar fell 0.7 percent to 0.9823 franc.

"Generally, the market used the initial modest rally and sold into it, just on the back of no risk appetite," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

"It looks like another risk-off session with global equities down and commodities prices still under pressure. So, I think that's going to put pressure on the dollar overall."

U.S. producer prices showed an increase in November as the cost of services increased, but the underlying trend continued to point to weak inflation pressures. The mixed numbers also helped pushed the euro, which had been negative against the dollar leading up to the data release.